The buyout of $16.5 billion by private equity Citrix systems missing one important ingredient: a $15 billion debt sale to fund the deal. And this debt sale will be pushed back until after the Labor Day holiday in the United States, Bloomberg reported.
Read between the lines and there’s an important lesson here for MSPs, MSSPs, tech and cybersecurity companies who believe that private equity firms have endless piles of cash ready for further acquisitions.
Private Equity and Debt Financing: What MSPs Can Learn from Citrix Deal
Reality: Private equity firms had $1.78 trillion in dry powder since February 2022, Preqin estimates. It is a huge financial stock. However, many private equity transactions involve debt financing, and this debt financing could become more difficult to find in an environment of rising interest rates, volatility on Wall Street, falling market valuations of SaaS companies and worries about a recession.
Think of it this way: Evergreen Coast Capital (a subsidiary of Elliott Management) and Vista Equity Partners (the former owner of datto) announced its intention to acquire Citrix for $16.5 billion in January 2022. But fast forward to July 2022, and Bloomberg describes how the changing economic climate is now influencing the deal:
“Banks committed to financing in January , but since then the cost of borrowing has risen significantly above the maximum yields they promised on debt, leaving them on the hook for about $1 billion in losses. Issuance of new debt has slowed to a trickle, and nearly all outstanding transactions are priced at deeply discounted par prices.
The Citrix sale is expected to go ahead, as Bloomberg adds: “Lenders, led by Bank of America Corp., are hoping September  will provide a more positive backdrop for selling debt to investors.
MSP M&A: ask where the money is coming from
Tips for MSPs:
- Stay humble;
- continue to grow your EBITDA and annual recurring revenue (ARR); and
- If a potential buyer comes knocking on the door of your business…be sure to ask them exactly how they plan to finance the transaction.